Are homeschool co-op tuition discounts taxable income? Probably!

uncle_sam_holding_money_pc_400_clr_1727

Carol,

I see a lot of schools (homeschooling co-ops, private schools, etc) that offer tuition discounts or reduction for parent volunteer hours. If a parent volunteers to teach a  class a few hours a week and receives a tuition reduction for this commitment, is this considered taxable income for the parent?

I have also read this:

“IRS has broadly interpreted a worker’s “compensation” to also include the amount of free or reduced tuition that is given to a parent in consideration for his or her service to the school or church. A worker is no longer considered to be “volunteering” if he or she receives something of value “in kind” for his or her service. In the situation of a working parent whose child is enrolled in the school, it is the student’s waived tuition amount normally charged to nonworking parents that will constitute the worker’s taxable wage amount.”

I would love any follow up information you have about this. Thanks again!

Joanna R.

 

Dear Joanna,

I read the quote you provided with a lot of interest. I did a little research and came across IRS Publication 3079 which, although its title is “Tax Exempt Organizations and Gaming,” had a helpful section titled, “Volunteer Labor”

It stated something I didn’t want to read,

“Compensation is interpreted broadly. A worker who obtains goods or services at a reduced price in return for his services may be considered to be compensated.”

 

When the IRS says “compensated,” they mean taxable income. Ugh! That could mean that hard working volunteers in a homeschool organization, who get a discount on tuition, could have to report and pay taxes on this “compensation.”

But, as with all IRS documents, I kept reading Publication 3079 and found this:

On the other hand, a worker who receives merely insignificant monetary or non-monetary benefits is considered a volunteer, not a compensated worker.
Determining whether a benefit is insignificant requires consideration not only of the value of the benefit but also:
•The quantity and quality of the work performed;
•The cost to the organization of providing the benefit; and
•The connection between the benefit received and the performance of services.
(emphasis added)

 

So, if a co-op gives an insignificant monetary benefit to its volunteers, it is not taxable income. The IRS does not define insignificant, but here ares two examples that might help:

Insignificant benefits to a volunteer
A volunteer teacher was given a $50 discount off her $250 tuition for teaching a class. She put in a minimum of 30 hours preparing and teaching this semester-long class. That’s is an hourly rate of less than $2/hour. That seems pretty insignificant to me! It cost nothing for the co-op to offer this benefit. The co-op offered this discount as an incentive to increase volunteerism and it was not payment for services.

Significant benefits are taxable income
Another co-op gave their director several thousands of dollars in gift cards to grocery stores and Target, gave her children free tuition worth $1,500,  waived all field trip fees, theater ticket fees and registration fees amounting to hundreds more in benefits. These were NOT insignificant and were compensation for her services. The co-op thought that by giving gift cards and reduced tuition they could avoid payroll taxes and the paperwork of hiring and paying their director as an employee. They were wrong! The director should be treated as an employee. She should report all these benefits as taxable compensation.

Conclusion
Homeschool leaders should determine if the benefits of reduced tuition of fees they are giving to volunteers are insignificant. Look to the IRS guidelines in IRS Publication 3079 listed above. If the benefits are significant and are compensation for services, then it needs to be reported as taxable income to the worker/volunteer.

I can help you determine if your fee waivers or discounts are “insignificant.” Just contact me.

My ebook Paying Workers in a Homeschool Organization can help you determine the paperwork and reporting for workers.

Carol Topp, CPA

Save

Speak Your Mind

*